Posted by: Karyn McCormack on October 9, 2009

Hard assets. That’s what more investors are talking about and putting money into these days. Look at the price of gold this week, surging to an all-time high above $1,060 an ounce on Oct. 8. That wouldn’t have turned heads a year ago, when the world was staring into the economic abyss with the credit markets frozen and all asset prices in freefall. But now, with the stock market up 58% since March and growing confidence that an economic recovery is taking shape, what’s the allure?

True, nobody expects the dollar’s slide against the euro, yen and several other currencies to stop anytime soon. And people are justifiably nervous about what the ballooning U.S. Treasury’s balance sheet will mean for future prosperity. But isn’t speculation about the dollar losing its pre-eminence as the world’s serve currency a bit premature?

Not to Jim Rogers, celebrated former hedge fund manager, world traveler and investment guru. He recommends gold and commodities that serve as a store of value since not many central banks insist on maintaining sound currencies and even those that do – Canada, Singapore and Australia – will be under pressure to follow the trend if they want to stay competitive. He noted the worry that the world’s central banks, having loaded up on so much debt to get their economies moving again, are likely to be tempted to inflate their currencies to drive down the costs of paying down that debt.

Rogers spoke to a packed auditorium of investors in midtown Manhattan on Oct. 8. The event was sponsored by London-based ETF Securities, which just launched its first physically backed gold and silver ETFs in the U.S. – ETFS Physical Swiss Gold Shares (SGOL) and ETFS Physical Silver Shares (SIVR). The company has provided commodity ETFs in Europe for most of the past decade.

Physically backed is meant to become a buzz word, to distinguish these vehicles from exchange traded funds that invest in commodities futures. The future of those funds is looking more and more iffy with the Commodities Futures Trading Commission imposing position limits on funds and looking at other ways to rein in speculation that can drive prices up.

Before introducing Rogers, ETF Securities’ head of research, Nicholas Brooks, stressed that the CFTC’s position limits won’t affect ETFs backed by physical gold or silver. He also emphasized his company’s attention to diversifying the banks where it stores the physical metal between HSBC in London and JP Morgan in Zurich. Even so, concerned audience members wanted assurances about whether ETF Securities actually owns and audits its own gold inventories or relies on sub-advisors that don’t audit inventories and even lend them out, as a key competitor does.

Hard assets. After what they’ve weathered in the past year, investors aren't willing to take anything on faith anymore.

In his talk, Rogers also noted the shift of economic and political power to Asia. Less than two years ago, he moved his young family to Singapore and encourages all parents to get their kids into Mandarin classes.

"China is doing what all good capitalists always do," he says. The country is buying copper and gold mines, oilfields and other hard assets throughout Africa, South America and elsewhere. He expects China to own a major portion of the world’s natural resources in 10 to 20 years.

Rogers owns quantities all four precious metals, but right now favors silver and palladium, whose prices are still 70% below their all-time highs. And it's not just metals he recommends. The price of sugar, too, despite having doubled since 1981, remains 70% below its historic high in the early 1970s.

Investors can’t afford to ignore the supply and demand factors that will drive commodity prices higher, he says. Thirty-five years ago, when many commodity prices reached record highs, most of Asia wasn’t in the game. China, still ruled by Mao Zedong, wasn’t on any road to development, India’s economy was being run into the ground, and Vietnam was still reeling from 30 years of war. The growing needs of the over three billion people who live in Asia are now a key part of the equation.

Rogers took a silver coin and a packet of sugar out of his pocket a couple of times during his talk. Hard assets. Investors can’t ignore them.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money.
Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.